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Nontariff issues in the MTN: Complex discussions at the Multilateral Trade Negotiations in Geneva

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
June 1976
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S. J. Anjaria

In recent years the significance of non-tariff measures as barriers to trade has become more apparent, in part because of the gradual erosion of tariff walls following successive rounds of tariff negotiations. The current round of multilateral trade negotiations (MTN) is regarded as providing an important opportunity for a concerted effort by participating countries to liberalize nontariff barriers. These negotiations—known as the Tokyo Round—involve over 90 participating governments and are being conducted in Geneva under the auspices of the General Agreement on Tariffs and Trade (GATT).

In principle, nontariff measures can be classified into two broad groups: (1) those that directly restrict international trade (such as quantitative import restrictions); and (2) those that are primarily applied for reasons of domestic policy, but which may indirectly have the effect of restricting trade (for example, industrial and health standards, or packaging and labeling requirements). The achievement of a liberal international trading system would require the total abolition of the barriers pertaining to the first group, but would call only for the elimination of the trade restrictive effect of the second group of measures. However, in the negotiating context such a broad classification is not particularly helpful since a method has to be found to deal with the vast variety of nontariff measures in some order of priority. The GATT Secretariat has prepared and continuously updated an extensive inventory of nontariff barriers based on notifications received from individual contracting parties whose exports are adversely affected by nontariff measures in other countries. However, the country applying the measures can challenge this information, and then the existence or nonexistence of a “barrier” itself becomes a matter for negotiation.

The first task of the Tokyo Round negotiators has been to classify nontariff measures to be discussed initially into four broad categories and to assign each to a specific negotiating subgroup. One of the subgroups deals with quantitative restrictions, import prohibitions, import licensing procedures, and export restraints; another with export subsidies and countervailing duties; a third, with technical barriers to trade, including standards, packaging and labeling requirements, and marks of origin; and a fourth subgroup deals with customs matters, including customs valuation, import documentation, consular formalities, customs procedures, and customs nomenclatures. The work of the subgroups—which sometimes meet simultaneously—is coordinated by a group on nontariff measures, which is one of the six groups presently conducting the negotiations. These groups report to the Trade Negotiations Committee, the body charged with overseeing all aspects of the Tokyo Round negotiations. Many other important measures which can restrict international trade (such as government procurement policies) have been left for later consideration, on the understanding that these may be brought into the negotiations by interested delegations at any time.

Alternative negotiating approaches

Three general issues have arisen in the negotiations on nontariff measures which are likely to influence the pace of the negotiations and the extent of eventual trade liberalization. The first issue concerns the agricultural sector. One view, advanced by the United States and some other countries, is that (similar to tariff barriers) many nontariff measures are applied to both industrial and agricultural trade and, therefore, the negotiations on nontariff measures should encompass all of them. This position admits that a few nontariff measures relevant largely to the agricultural sector may need special consideration. However, such special consideration can be given when the general solutions developed are found wanting. The alternative approach, suggested principally by the European Economic Community (EEC), is to treat agricultural questions separately. According to the EEC, both tariff and nontariff restrictions on agricultural trade should be considered in the group on agriculture.

A second issue arises from the special concerns of several participating countries which, individually, account for a considerably smaller portion of world trade than the major industrial countries. These countries have an important interest in securing liberalization of specific non-tariff barriers on particular products they export to the principal trading nations, and they feel that such trade barriers might not be adequately dealt with multi-laterally. They have thus sought early commencement of bilateral negotiations on specific nontariff barriers of concern to them. These negotiations would be initiated by the interested country and followed by offers of concessions from other participants. A suggestion has also been made that negotiations on nontariff measures not dealt with multilaterally should be merged with the bilateral tariff negotiations on the products included in the lists of exceptions submitted in the tariff negotiations. A request-and-offer procedure would, in this view, ensure that both the tariff and nontariff measures of concern to them would be negotiated in a comprehensive manner and would reduce the possibility of the benefits of tariff reductions being offset by nontariff barriers.

A third question affecting virtually all nontariff measures concerns the position adopted by the developing countries regarding preferential treatment. Most developing countries have argued that the developed countries should neither intensify existing nontariff barriers nor introduce new barriers against exports of developing countries. In addition, the negotiations should aim at agreeing on a program for the removal, over an agreed period, of barriers, such as quantitative restrictions and the so-called voluntary export restraints which are of most serious concern to developing countries. Some of these requests have been considered in the relevant subgroups but so far no concrete results have emerged.

Quantitative restrictions

Under the GATT, contracting parties undertake to avoid imposing quantitative import restrictions except in specific situations (such as balance of payments difficulties). Over the years not all contracting parties have adhered to GATT provisions, and have either introduced such restrictions without formally notifying the GATT and subjecting themselves to its consultation procedures or have obtained waivers from GATT rules that in principle are temporary but in several instances have been renewed from year to year.

In this context, a crucial point of disagreement among participants is whether “legal” and “legalized” quantitative restrictions should be removed on the same basis as “illegal” restrictions. The concept of reciprocity is relevant in an assessment of this question, for, in principle, countries removing “illegal” restrictions would not be entitled to reciprocal concessions, since such removal would not constitute a concession. Although this dispute of principle persists, there are also practical difficulties in classifying all quantitative restrictions as either “legal” or “illegal” under GATT provisions, because in many instances under GATT practice the definition of legality or consistency with GATT provisions has depended largely on the restricting country’s own interpretation of the purpose and effect of its measures.

Initial discussions have also underlined divergent views among participants on how subsidies and countervailing duties should be negotiated. The major difference is whether the negotiations should give priority to the problem of frequent resort to countervailing actions or to defining and regulating export subsidy practices. These differences are partly attributable to the different legal bases for the domestic application of GATT provisions dealing with subsidies and countervailing duties in different countries.

Work is presently under way on a number of other nontariff measures, some of which restrict international trade indirectly. In some areas (such as standards and customs valuation procedures) draft texts were drawn up prior to the commencement of the MTN and circulated to governments for their comments. If participating governments formally endorse the draft texts already agreed, these drafts could serve as the basis for agreements aimed at refining or interpreting existing GATT provisions on the basis of codes of conduct, guidelines, or formal interpretative notes to the General Agreement. Discussions on certain other nontariff measures are still in preliminary stages and will require further intensive preparations at an expert level.

The safeguard system

From time to time a country may find its domestic industries threatened with dislocation or collapse as a result of increased imports which in part may be the result of its tariff concessions or other nontariff commitments vis-a-vis its trading partners. It may then be obliged to restrict imports by imposing some restrictions. International rules governing the circumstances and conditions in which countries may temporarily deviate from their normal trading obligations comprise the multilateral safeguard system.

The present system of safeguards is governed primarily by Article XIX of the General Agreement, which authorizes contracting parties to take emergency import-restricting measures if it can be shown that there is an actual or threatened injury from imports to domestic industries. After consultations among the countries concerned, the import measures may be implemented, on a nondiscriminatory basis, to the extent and for such time as may be necessary to prevent or remedy the injury to domestic industries. In practice many GATT members have chosen not to invoke Article XIX when faced with import competition threatening to domestic industry. Instead, countries have preferred to resolve any problems either through bilateral consultations and solutions—for example, by convincing foreign suppliers to introduce “voluntary” export restraints—or by entering into international agreements which in effect bypass certain GATT provisions.

The initial discussions in the MTN have revealed that participants differ in their interpretations of what constitutes a “safeguard action.” While there is no disagreement that GATT Article XIX constitutes the core of the present system of multilateral safeguards, some countries (including Australia and the United States) consider that the negotiations should encompass the entire range of measures available to governments under or even outside the General Agreement. According to this view, any examination of the adequacy of the present system should include not only the reasons why only a few countries have justified their restrictive actions under Article XIX but also why many others have responded to situations of market disruption through other measures, or have operated trading systems which simply preclude market disruption situations from arising. A comprehensive view of the safeguard system is considered essential, particularly by the major exporters of primary products who feel that the present provisions force them to accept restraints on their actions to protect their own, relatively less advanced, manufacturing industry, while placing no corresponding obligation on the industrially more advanced countries to invoke Article XIX for justifying their restrictions on imports of agricultural products.

TOKYO ROUND of MULTILATERAL TRADE NEGOTIATIONS (MTN) launched by the September 1973 Ministerial Meeting in Tokyo which adopted the Tokyo Declaration

Other countries (such as Japan and members of the EEC) have argued that the negotiations on safeguards should focus only on Article XIX provisions, since a broader view would inevitably entail consideration of many, if not all, existing quantitative restrictions of all types which could better be discussed independently of the question of safeguards.

Although the Tokyo Declaration—which launched the Tokyo Round discussions—provided for an examination of the system of multilateral safeguards in the MTN, it was silent on whether a formal amendment of Article XIX provisions would be necessary. Some countries have expressed the view that it is necessary to replace the present provisions with a more comprehensive set of rules that would be easier to invoke than at present. The easier conditions for invoking safeguard provisions under the GATT would be subject to more effective international surveillance. Other participants have warned against any liberalization of safeguard provisions which they believe would increase the danger of proliferation of import restrictions. In their view the negotiations should seek ways of ensuring better compliance in practice with Article XIX provisions as presently formulated; for example, by defining more precisely the circumstances in which emergency import-restraining measures may be applied.

Under the present GATT system of safeguards, any emergency action to restrict imports must be on a nondiscrim-inatory basis, that is, it must be applied to all contracting parties irrespective of whether the injury from imports results from the trade of a few or all nations. It has been suggested that the rule of non-discrimination—which is fundamental to the GATT—is a powerful deterrent to the invocation of Article XIX, since no country wishes to involve all its suppliers in its restrictive actions. If in fact the injury is due to imports from only one or a few sources, the chances of retaliatory restrictions or suspension of tariff concessions by other countries are great. It has been argued that countries therefore find it in their interest to avoid recourse to Article XIX altogether and attempt a settlement outside the GATT framework on a bilateral basis. Permitting “selective” or discriminatory action under revised safeguard rules would, in this view, remove an important obstacle to the effective functioning of the multilateral safeguard system.

This view has been strongly challenged by those countries which consider the principle of nondiscrimination as a fundamental cornerstone of the international trading system, and fear a reversion to crude bilateralism once the principle of selective application is given international approval. The principle of nondiscrimination has also been supported by those who consider any revision of Article XIX which would facilitate recourse to safeguard actions as amounting to a blanket approval for frequent imposition of import restrictions. Other supporters include countries whose export interests would be jeopardized if the principle of discrimination were to gain international acceptability. Some countries have taken a more moderate approach by favoring selective application of safeguard actions in certain well-defined, infrequent cases, and even then only subject to international surveillance.

Adjustment assistance measures

The important issue of adjustment assistance policies and measures is closely connected with the proposals for a revised safeguard system. The purpose of a temporary departure from a liberal trading system is to permit the importing country to implement policies to assist the shift of resources from the affected industry to other, more advantageous, lines of production. Indeed, the efficacy of a safeguard system may be judged largely on its ability to encourage such shifts of resources in the domestic economy or to impose penalties for the failure to do so. However, both technical and political difficulties are likely to impede rapid progress on this question. In part, the technical problems arise from the complexity and diversity of national legislation in the industrial countries. This makes the task of establishing common guidelines for adjustment assistance policies very difficult. Moreover, there is considerable opposition at the policymaking level, both in the national administrations and in legislative bodies, to agreeing in advance, and at an international level, on strictly defined rules for providing adjustment assistance to domestic industries under certain predetermined conditions. This is viewed by many countries as the strict prerogative of policymakers at a national level.

Tropical products

Liberalization of trade in tropical products is another objective of the Tokyo Round negotiations. Tropical products refer to primary commodities such as coffee, tea, cocoa, and bananas, which are grown, processed, and exported by many developing countries mainly to markets in the developed countries. Any improvements which are brought about in the terms of access to markets for tropical products would constitute an important contribution to the Tokyo Round objective of securing additional benefits for the international trade of developing countries. Indeed, the Tokyo Declaration, which launched the negotiations, provides that tropical products should be treated in the negotiations “as a special and priority sector.”

Although the Kennedy Round negotiations of 1964–67 resulted in lower tariffs for certain tropical products, they did not attempt to deal with the question of increasing developing countries’ exports of tropical products in a comprehensive way, largely because certain developed countries felt obliged to respect the preferential interests of their particular developing country suppliers. Thus, the partial lowering of tariffs was more a by-product of the general tariff negotiations than the specific result of negotiations in this sector.

In the preparatory work for the current negotiations, the special problems affecting world trade in tropical products have been identified as the following: (1) the continued levying of tariffs by developed countries on certain imports of tropical products even in unprocessed form; (2) tariff escalation on semiprocessed and processed tropical products, which limits developing countries’ possibilities for domestic processing, refining, or packaging of their tropical exports; (3) application of quantitative restrictions, internal taxes, and other nontariff barriers to trade in tropical products; and (4) instability of earnings and prices in world markets for some tropical products. Subsequently, the developing countries have argued that any solutions should be implemented independently and in advance of the negotiations in other areas. They have suggested specifically that efforts be made to find solutions to the problems in the tropical products sector by mid-1976, with implementation of the agreed solutions in 1977.

The tropical products group agreed, early in 1975, on the negotiating procedures for this sector. The agreed approach was that developing countries interested in securing liberalization of particular tariff and nontariff barriers would submit lists to the developed countries requesting such action on individual tropical products. Numerous request lists were submitted and, early in 1976, the developed countries responded by tabling their initial offers of trade concessions on tropical products. Further negotiations on the specific requests and offers are continuing. It is thus possible that, in line with the declared objective, specific results from these negotiations may materialize before the end of the Toyko Round.

In contrast to some of the other elements of proposals to establish a more effective safeguard system, the need for an improved and more effective machinery for multilateral surveillance over safeguards appears to be more generally accepted. Whether or not the negotiations result in a revision of the criteria for the invocation of safeguard actions, existing GATT organs—or a new body—could be given greater powers to ensure stricter adherence to agreed rules. Detailed discussion of possible ways to improve international surveillance over safeguard actions will take place in future stages of the negotiations.

The two areas discussed in this article—liberalization of nontariff barriers and improvements in the system of multilateral safeguards—clearly present an important challenge in the negotiations. This is not only because a concerted effort is under way in these areas for the first time, but also as it is increasingly evident that progress in these areas is essential if the benefits of advances in the other areas under negotiation, including tariff reduction, are to be secured for the long term. Because they are technically more complex and involve vital national interests, the negotiations can be expected to be time consuming. The present objective of concluding the negotiations in 1977, which was agreed upon at the six-nation economic summit conference at Rambouillet in November 1975 and generally endorsed by the Trade Negotiations Committee the following month will thus require a significant acceleration in the current pace of the negotiations. It is to be hoped that these efforts will ultimately result in an improved international trading system and freer trade, yielding more balanced benefits for all countries.

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